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    MCHX   US56624R1086

MARCHEX, INC.

(MCHX)
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Delayed Nasdaq  -  04:00 2022-06-24 pm EDT
1.260 USD   -1.56%
06/23Marchex Wins Artificial Intelligence Innovation Award in 2022 AI Breakthrough Awards Program
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05/13MARCHEX INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
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05/13Tranche Update on Marchex, Inc.'s Equity Buyback Plan announced on November 5, 2014.
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MARCHEX INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/13/2022 | 04:15pm EDT
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We use words
such as "believes," "intends," "expects," "anticipates," "plans," "may," "will"
and similar expressions to identify forward-looking statements. All
forward-looking statements, including, but not limited to, statements regarding
our future operating results, financial position, prospects, acquisitions,
dispositions, and business strategy, expectations regarding our growth and the
growth of the industry in which we operate, and plans and objectives of
management for future operations, are inherently uncertain as they are based on
our expectations and assumptions concerning future events. We may not actually
achieve the plans, intentions or expectations disclosed in our forward-looking
statements we make. There are a number of important factors that could cause the
actual results of Marchex to differ materially from those indicated by such
forward-looking statements. Any or all of our forward-looking statements in this
report may turn out to be inaccurate. We have based these forward-looking
statements largely on our current expectations and projections about future
events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. They may be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties, including but not limited to the risks, uncertainties and
assumptions described in this report, in Part II, Item 1A. under the caption
"Risk Factors" and elsewhere in this report and in our Annual Report on Form
10-K for the year ended December 31, 2021, as amended, and those described from
time to time in our future reports filed with the SEC. In light of these risks,
uncertainties and assumptions, the forward-looking events and circumstances
discussed in this report may not occur as contemplated and actual results could
differ materially from those anticipated or implied by the forward-looking
statements. In addition, the global economic climate and additional or
unforeseen effects from the COVID-19 pandemic may amplify many of these risks.
All forward-looking statements in this report are made as of the date hereof,
based on information available to us as of the date hereof, and we assume no
obligation to update any forward-looking statement.

The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our results of operation and
financial condition. You should read this analysis in conjunction with the
attached condensed consolidated financial statements and related notes thereto,
and with our audited consolidated financial statements and the notes thereto,
included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Overview

References herein to "we," "us" or "our" refer to Marchex, Inc. and its wholly-owned subsidiaries unless the context specifically states or implies otherwise.


Marchex's conversation intelligence platform, that incorporates AI functionality
to help with sales engagement and marketing solutions, helps businesses turn
strategic insights into the actions that can drive their most valued sales
outcomes. Our multichannel voice and text capabilities help enable sales and
marketing teams to deliver the buying experiences that improves their customer
experiences. Marchex provides its' conversation intelligence solutions for
market-leading companies in numerous industries, including several of the
world's most innovative and successful brands.

We have a set of tools for enterprises that depend on phone calls, texts and
other communication channels to help convert prospects into customers, to
deliver compelling customer experiences during the sales process and maximize
returns. Our mission is to empower performance improvements for our customers to
grow by giving them real-time insights into the conversations they are having
with their customers across phone, text and other communication channels.
Marchex leverages proprietary data and conversational insights to deliver
artificial intelligence-powered functionality that drives solutions and helps
enable brands to personalize customer interactions in order to accelerate sales
and grow their business.

Our primary product offerings are:

• Marchex Call Analytics. Marchex Call Analytics is an analytics platform for

enterprises that depend on inbound phone calls to drive sales, appointments

and reservations. Businesses use this platform to understand which marketing

channels, advertisements, search keywords, or other digital marketing

advertising formats are driving calls to their business, allowing them to

optimize their advertising expenditures across media channels. Marchex Call

Analytics also includes technology that extracts data and insights about

what is happening during a call and measures the outcome of the calls and

return on investment. The platform also includes technology that can block

robocalls, telemarketers and spam calls to help save businesses time and

expense. Marchex Call Analytics data can integrate directly into third-party

marketer workflows such as Salesforce, Eloqua, Adobe, Google, Kenshoo, Marin

Software, Facebook and Instagram, in addition to other marketing dashboards

and tools. Customers pay us a fee for each call/text or call/text related

data element they receive from calls or texts, or for each phone number

      tracked based on pre-negotiated rates.




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• Marchex Call Analytics, Conversation Edition. Marchex Call Analytics,

Conversation Edition is a product that can enable actionable insights for

enterprise, mid-sized and small businesses. It leverages our proprietary and

patented speech recognition technology. Marchex Call Analytics, Conversation

Edition incorporates machine and deep learning algorithms and AI-powered

conversation analysis functionality that can give customers strategic,

real-time visibility into company representative performance in customer

interactions. The product includes customizable dashboards and visual

analytics to make it easier for marketers, salespeople, and call center

teams to realize actionable insights across a growing amount of call data.

According to a January 2021 Markets and Markets report, the global

conversational AI market is expected to grow at a compounded annual growth

      rate of 22% from $6.8 billion in 2021 to $18.4 billion by 2026.


• Marchex Sales Engagement. The Marchex Sales Engagement suite of products

incorporate artificial intelligence-based functionality into each product,

enabling businesses to understand customer conversations in phone calls and

via text, in real-time and at scale, and helping them learn how to optimize

the sales process in order to take the right actions to win more business.

These sales engagement solutions can arm businesses with the data-driven

intelligence they need to deliver on-demand and personalized customer

experiences. Marchex Sonar Intelligent Messaging also provides a sales

engagement solution for SMS text message-based conversations. Marchex Sales

      Enablement products include:



         o  Marchex Engage. Marchex Engage combines Marchex artificial
            intelligence and machine learning with conversational call monitoring
            and scoring services and can alert businesses when potential buyers
            hang up without making an appointment or purchase, or when certain
            calls do not meet the business' sales or customer service standards.
            Marchex Engage, through Action Lists, can identify in real-time when
            potential high-value customer prospects engaged in

conversations with

            sales representatives are mishandled in any number of ways and can
            give businesses the opportunity to re-engage immediately to capture
            these potentially lost opportunities, as well as avoid undesired
            customer experiences. In addition, it can give businesses a more
            complete picture of the in-bound opportunities they are

missing, while

            also measuring the effectiveness and impact of capturing those
            opportunities through outbound engagement.



         o  Marchex Spotlight. Marchex Spotlight is a product for corporate and
            regional managers that can provide conversation performance insights
            and trends measured against corporate benchmarks across a brand or
            network of distributed business locations. The conversational data
            analyses can provide critical sales insights and proactive
            observations that can help enterprises boost outcomes across national
            and regional sales organizations.



         o  Marchex Engage for Automotive. This 2021-award-winning-sales
            engagement product for automotive dealers unlocks the content of
            conversations with car buyers who have shown high purchase
            consideration and enables sellers to prioritize their best leads,
            deliver a better buying experience for consumers and take the right
            actions to sell more vehicles. Integration with leading dealer CRM
            systems enables sellers to make outbound calls via

click-to-call from

            within the CRM and frees up their time by automatically

updating the

            CRM with enriched leads as they complete each inbound or

outbound

            conversation. Marchex Engage for Automotive was the 2021

recipient of

            the Product of the Year award by the BIG Awards for Business and the
            Sales and Marketing Technology Awards.


o Marchex Platform Services. Marchex Platform Services is an API-based,

            easy to integrate solution that allows businesses to add Marchex
            conversation intelligence to their existing workflows, enabling them
            to decode what happens in their conversations with customers. It uses
            the company's conversation classification technology to deliver
            mission-critical conversation data for sales, customer

engagement and

            marketing teams so they can take decisive action in the course of the
            customer journey when it matters most. Marchex Platform Services
            enables businesses to obtain Marchex's artificial

intelligence-based

            functionality in Marchex's conversation intelligence platform directly
            from their existing communications platforms.


• Marchex Marketing Edge. Marchex Marketing Edge is a conversational analytics

solution for marketers in enterprise, mid-sized and small businesses that

depend on inbound phone calls to drive sales, appointments and reservations.

It helps enable marketers to make data-driven decisions that improve

marketing performance. Marketers can use this solution to understand which

marketing channels, advertisements, search keywords, or other digital

marketing advertising formats are driving calls to their business, enabling

them to optimize their advertising expenditures across media channels.

During 2021, Marchex Marketing Edge received the MarTech Best Marketing

Attribution Solution award. In addition to call and text tracking, Marchex

Marketing Edge also includes conversation intelligence technology that can

automatically transcribe, redact and score calls. Marchex Marketing Edge

also seamlessly integrates with Marchex Engage so sales teams can be

empowered to receive real-time text and/or email notifications when a caller

showing high purchase intent ends a conversation without making an

appointment or a purchase so they can reengage to save the sale. Marchex

Marketing Edge includes technology that can block robocalls, telemarketers

and spam calls to help save businesses time and expense. Marchex Marketing

Edge data can integrate directly into third-party systems such as Google

Ads, Google Analytics, Search Ads 360, Google Campaign Manager, Microsoft

Advertising, Adobe, Kenshoo, Acquisio, Salesforce and HubSpot in addition to

other marketing and chat offerings.

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Text Analytics and Communications. Marchex Sonar Intelligent Messaging is a

solution for intelligent mobile messaging that enables sales, marketing, and

operations teams in businesses to engage in two-way communications with

field staff, prospects and customers via text/SMS messages. This can enable

communication that is personal to occur at scale, leading to significant

increases in critical actions, customer engagement and conversions.

According to a study done by Messagedesk, 76% of consumers already receive

text messages from businesses and 39% of businesses are using text messaging

      to communicate with consumers.


• Call Monitoring. Marchex provides businesses the ability to have an unbiased

view into every inbound or outbound call, from providing a call recording,

to offering services to create customized call performance scorecards, both

of which can help businesses learn more about their customers and enhance

service quality and customer satisfaction. Through these services,

businesses can customize the insights they want in order to improve business

practices and grow faster.

We operate primarily in domestic markets.

Our Strategy


Innovating on Conversational Intelligence Technology and Solutions. We plan to
continue to expand and invest in our conversational intelligence technology and
expand our AI, data science, and machine learning capabilities. We also plan to
continue to expand our range of call, text, and other communication channels
analytics and sales engagement product capabilities by growing our conversation
intelligence solutions, including AI-driven speech technology solutions,
call tracking, call monitoring, text communications, keyword-level tracking,
display ad impression measurement and other products as part of our owned,
end-to-end, call and text-based advertising solutions. Our expanding
capabilities are enabling us to develop new solutions, like sales engagement and
personalization solutions that enable us to take advantage of our growing
conversational data assets.

Supporting and Growing the Number of Customers Using Our Products and Services.
We plan to continue invest in technology initiatives which we believe will
enable us to access an wider base of businesses by offering our products to a
new array of channel partners. Through these initiatives Marchex can now
integrate with businesses existing communication providers or telephony
infrastructure providers to offer its products and services. Increasingly,
Marchex customers will no longer have to access separate telephony
infrastructure to engage with our conversational intelligence suite of products
but will instead be able to choose to access our products from within their
existing communications provider of choice. We also plan to continue to provide
a consistently high level of service and support to our conversational
intelligence solutions customers and we will continue to focus on helping them
achieve their return on investment goals. We are focused on increasing our
customer base through our direct sales and marketing efforts, including
strategic sales, inside sales, and additional partnerships with resellers.

Pursuing Selective Acquisition Opportunities. We have historically and in the
future may pursue select acquisition opportunities and will apply evaluation
criteria to any acquisitions we may pursue in order to enhance our strategic
position, strengthen our financial profile, augment our points of defensibility
and increase shareholder value. We generally focus on acquisition opportunities
that represent one or more of the following characteristics:

• revenue growth and expanding margins and operating profitability or the

characteristics to achieve larger scale and profitability;

• opportunities for business model, product or service innovation, evolution

or expansion;

• under-leveraged and under-commercialized assets in related or unrelated

businesses;

• an opportunity to enhance efficiencies and provide incremental growth

        opportunities for our operating businesses; and


  • business defensibility.


Evolving Our Business Strategy. Our industry is undergoing significant change
and our business strategy is continuing to evolve to meet these changes. In
order to profitably grow our business, we may need to expand our current lines
of business as well as explore new lines of business beyond our current focus of
providing mobile advertising intelligence products and services, which may
involve pursuing strategic transactions, including potential acquisitions of, or
investments in, related or unrelated businesses. In addition, we may seek
divestitures of existing businesses or assets. For example, in October 2020, we
sold certain assets related to our Call Marketplace, Local Leads Platform and
other assets not related to core conversational analytics.

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Developing New Markets. We intend to analyze opportunities and may seek to
expand our technology-based products into new business areas where our services
can be replicated on a cost-effective basis, or where the creation or
development of a product or service may be appropriate. We have technology
integration partnerships and referral agreements with Adobe, Google Search, and
Salesforce, Facebook, and other third-party marketers. We anticipate utilizing
various strategies to enter new markets, including developing strategic
relationships; innovating with existing proprietary technologies; acquiring
products that address a new category or opportunity; and creating joint venture
relationships.

We were incorporated in Delaware on January 17, 2003.

We have offices in Seattle, Washington; Wichita, Kansas; and Mississauga, Canada.


Recent Developments

New Product Launch

In March 2022, Marchex announced that it has launched Marchex Conversation DNA.
This core technology enables voice and text conversation decoding, scoring,
categorization and signal delivery across every Marchex conversation
intelligence product. Conversation DNA uses Marchex's proprietary AI
infrastructure built to uncover relevant insights - such as what customers want
and what they are searching for - from a library of more than one billion
minutes of voice conversations and hundreds of millions of text messages the
company processes each year. These valuable AI signals can help businesses
understand how to anticipate customer needs in order to deliver highly
personalized experiences.

Business Update


Our revenue grew $191,000, or 1%, on a year-on-year basis as we experienced an
increase in conversational volumes. We believe our revenue growth continues to
be impacted by the lingering issues related to the resurgence of new COVID-19
variants, supply chain disruptions and labor shortages. However, we are opening
more opportunities with our existing and new customers through multiple product
offerings and our continued product innovation.

Our operating expenses continue to benefit as we make advancements in our technology infrastructure and cloud initiatives. Moving portions of our technology infrastructure to the cloud enables us to innovate through scale and a common architecture.

For additional information for the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations, refer to "Results of Operations" within this discussion and analysis and Item 1.A of Part II, "Risk Factors".

Components of the Results of our Operations

Revenue


We generate the majority of our revenues from core analytics and solutions
services. Our call analytics technology platform provides data and insights that
can measure the performance of calls and texts for our customers. We generate
revenue from our call analytics technology platform when customers pay us a fee
for each call/text or call/text related data element they receive from calls or
texts or for each phone number tracked based on a pre-negotiated rate. Customers
typically receive the benefit of our services as they are performed and
substantially all of our revenue is recognized over time as services are
performed.

In certain cases, we record revenue based on available and reported preliminary
information from third parties. Collection on the related receivables may vary
from reported information based upon third party refinement of the estimated and
reported amounts owed that occurs subsequent to period ends.

Service Costs


Our service costs represent the cost of providing our services to our customers.
These costs primarily consist of telecommunication costs, including the use of
phone numbers relating to our services; colocation service charges of our
network equipment; bandwidth and software license fees; network operations; and
payroll and related expenses of personnel, including stock-based compensation.

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Sales and Marketing


Sales and marketing expenses consist primarily of payroll and related expenses
for personnel engaged in marketing and sales functions; advertising and
promotional expenditures including online and outside marketing activities; cost
of systems used to sell to and serve customers; and stock-based compensation of
related personnel.

Product Development

Product development costs consist primarily of expenses incurred in the research and development, creation and enhancement of our products and services.


Our research and development expenses include payroll and related expenses for
personnel; costs of computer hardware and software; costs incurred in developing
features and functionality of the services we offer; and stock-based
compensation of related personnel.

For the periods presented, substantially all of our product development expenses
are research and development. Product development costs are expensed as incurred
or capitalized into property and equipment in accordance U.S. GAAP.

General and Administrative


General and administrative expenses consist primarily of payroll and related
expenses for executive and administrative personnel; professional services,
including accounting, legal and insurance; bad debt provisions; facilities
costs; other general corporate expenses; and stock-based compensation of related
personnel.

Stock-Based Compensation

We measure stock-based compensation cost at the grant date based on the fair
value of the award and recognize it as expense over the vesting or service
period, as applicable, of the stock-based award using the straight-line method.
We account for forfeitures as they occur. Stock-based compensation expense is
included in the same lines as compensation paid to the same employees in the
Condensed Consolidated Statements of Operations.

Amortization of Intangibles from Acquisitions


Amortization of intangible assets excluding goodwill relates to intangible
assets identified in connection with our acquisitions. The intangible assets
have been identified as customer relationships; acquired technology;
non-competition agreements; tradenames. These assets are amortized over useful
lives ranging from 12 to 60 months.

Provision for Income Taxes


We utilize the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax law is recognized in results of operations in the period that
includes the enactment date.

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Results of Operations

The following table presents revenue and results from operations and as a percentage of revenue (in thousands):

                                         Three Months                       Three Months
                                            Ended             % of             Ended             % of
                                        March 31, 2021       revenue       March 31, 2022       revenue
Revenue                                 $       12,980             100 %   $       13,171             100 %
Expenses:
Service costs                                    5,422              42 %            4,935              37 %
Sales and marketing                              3,637              28 %            3,165              24 %
Product development                              5,322              41 %            3,460              26 %
General and administrative                       2,620              20 %            2,606              20 %
Amortization of intangible assets
from acquisitions                                1,181               9 %              531               4 %
Acquisition and
disposition-related costs
(benefit)                                           45               0 %                5               0 %
Total operating expenses                        18,227             140 %           14,702             112 %
Loss from operations                            (5,247 )           -40 %           (1,531 )           -12 %


Stock-based compensation expense was included in the following operating expense categories as follows (in thousands):

                                    Three Months Ended March 31,
                                     2021                  2022
Service costs                    $           8         $          34
Sales and marketing                        229                   191
Product development                         97                    82
General and administrative                 410                   388

Total stock-based compensation $ 744 $ 695

See Note 6. Stockholder's Equity of the Notes to Condensed Consolidated Financial Statements as well as our Critical Accounting Policies for additional information about stock-based compensation.

Revenue


Revenue increased 1% from $13.0 million for the three months ended March 31,
2021 to $13.2 million for the three months ended March 31, 2022. The three
months ended March 31, 2022 benefited from modestly higher call volumes in the
first quarter of 2022 as compared to 2021.
In the short term, we expect our revenues to be similar to modestly higher
compared to the most recent quarters as we typically experience higher
conversational volumes in the late spring and summer months. In addition, we
will continue to monitor the potential volume changes as the business disruption
caused by the continuing coronavirus pandemic evolves and macroeconomic
conditions unfold. We expect our results to be volatile in the near-term as the
pandemic and other macroeconomic impacts continues to be unpredictable.

In the longer term, we believe that our new product releases and growth
initiatives may enable the Company to have an opportunity for potential revenue
growth. A preliminary indicator of this potential growth is that several
customers and prospective customers have indicated that they plan to initiate
trials and are considering the adoption of new products, which would result in
new revenue opportunities.

For additional discussion of trends and other factors in our business, refer to Industry and Market Factors in Item 2 of this Quarterly Report on Form 10-Q.

Expenses


Service Costs. Service costs decreased $487,000, or 9%, from $5.4 million for
the three months ended March 31, 2021 to $4.9 million for the three months ended
March 31, 2022. As a percentage of revenues, service costs were 42% and 37% for
the three months ended March 31, 2021 and March 31, 2022, respectively. The
decrease in dollars was primarily due to lower network costs due to our
infrastructure initiatives, which include cloud migration initiatives, certain
platform integrations and other initiatives of $432,000. Additionally, the
decrease in dollars benefited from $276,000 higher support service fees
recovery. These were partially offset by $164,000 of higher personnel costs. We
expect in the near and intermediate term that service costs in absolute dollars
will be similar to modestly higher in relation to the most recent period. There
may be a positive impact on service costs as a percentage of

                                       19
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revenue and further benefit in the event we generate contribution from new launches of analytics products and sales engagement solutions.


Sales and Marketing. Sales and marketing expenses decreased 13% from $3.6
million for the three months ended March 31, 2021 to $3.2 million for the three
months ended March 31, 2022. As a percentage of revenue, sales and marketing
expenses were 28% and 24% for the three months ended March 31, 2021 and 2022,
respectively. The net decrease in dollars and as a percentage of revenue was
primarily attributable to higher support service fees recovery of $220,000,
lower marketing costs of $202,000, and lower personnel and outside service
provider and stock-based compensation of $72,000. We expect some volatility in
sales and marketing expenses based on the timing of marketing initiatives but
expect sales and marketing expenses in the near term to increase slightly as
revenue increase. We also expect, to the extent that we increase our marketing
activities, this could correspondingly also cause an increase as a percentage of
revenue. We also believe going forward our travel related costs will increase
slightly as pandemic related restrictions lift.

Product Development. Product development expenses decreased 35% from $5.3
million for the three months ended March 31, 2021 to $3.5 million for the three
months ended March 31, 2022. As a percentage of revenue, product development
expenses were 41% and 26% for the three months ended March 31, 2021 and 2022,
respectively. The net decrease in dollars and as a percentage of revenue was
primarily attributable to a net decrease in personnel and outside service
provider and stock-based compensation totaling $1.3 million and higher support
services fee recovery of $494,000. We expect that product development expenses
will be relatively stable in absolute dollars in the near term due to our
technology infrastructure and cloud initiatives offset by an increase in the
number of personnel and consultants to enhance our service offerings.

General and Administrative. General and administrative expenses of $2.6 million
for the three months ended March 31, 2022 was flat as compared to the three
months ended March 31, 2021. As a percentage of revenue, general and
administrative expenses were 20% for the three months ended March 31, 2021 and
2022, respectively. We recognized higher support services fee recovery of
$87,000 which was partially offset by higher amortization of $72,000 related to
hosting software licensing arrangements. We also expect our general and
administrative expenses to increase to the extent that we expand our operations
and incur additional costs in connection with being a public company and
regulatory updates including expenses related to professional fees and
insurance, as well as a result of stock-based compensation expense. We also
expect fluctuations in our general and administrative expenses to the extent the
recognition timing of stock compensation is impacted by market conditions
relating to our stock price. In addition, we anticipate that our general and
administrative expenses may be adversely impacted by the continuing COVID-19
pandemic at least for the near term.

Amortization of Intangible Assets from Acquisitions. Intangible amortization
expense was $1.2 million and $531,000 for the three months ended March 31, 2021
and 2022, respectively. The amortization of intangibles related to service
costs, sales and marketing and general and administrative expenses.

Income Tax (Benefit). The income tax expense (benefit) for the three months
ended March 31, 2021 and 2022 was $73,000 and $30,000, respectively. The income
tax expense for the three months ended March 31, 2022 consisted primarily of
U.S. state income tax expense. The effective tax rate differed from the expected
tax rate of 21% due to a full valuation allowance, and to a lesser extent due to
state income taxes, foreign rate differential, non-deductible stock-based
compensation related to incentive stock options recorded under the fair-value
method, federal research and development credits, and other non-deductible
amounts.

At March 31 2022, based on all the available evidence, both positive and
negative, we determined that it is not more likely than not that our deferred
tax assets (including Canadian deferred tax assets) will be realized and
accordingly, we have recorded a 100% valuation allowance of $54.0 million
against our net deferred tax assets $55.4 million of deferred tax assets that
are partially offset by $1.1 million in reversing deferred tax liabilities).
This compares to a 100% valuation allowance of $53.0 million at December 31,
2021 ($53.9 million of deferred tax assets that are partially offset by $1.0
million in reversing deferred tax liabilities). In assessing the realizability
of deferred tax assets, based on all the available evidence, both positive and
negative, we considered whether it is more likely than not that some or all of
the deferred tax assets will be realized. The ultimate realization of deferred
tax assets depends on the generation of future taxable income during the periods
in which those temporary differences are deductible. We considered the future
reversal of deferred tax liabilities, carryback potential, projected taxable
income, and tax planning strategies as well as the Company's history of taxable
income or losses in the relevant jurisdictions in making this assessment.

Net Income (Loss). Net loss was $5.3 million for the three months ended March
31, 2021 and a net loss of $1.6 million for the three months ended March 31,
2022. The decrease in the net loss for the three months ended March 31, 2022 was
primarily attributable to lower operating expenses of $3.5 million in the
product development, service cost, and sales and marketing functional areas.

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Liquidity and Capital Resources


As of December 31, 2021, and March 31, 2022, we had cash and cash equivalents of
$27.1 million and $24.6 million, respectively. As of March 31, 2022,  we had
long-term contractual obligations of $4.4 million, of which $3.0 million is for
rent under our facility operating leases.

Cash used in operating activities was $1.4 million for the three months ended
March 31, 2022. The cash used in operating activities was primarily a result of
a net loss of $1.6 million adjusted for non-cash items of $2.1 million, which
primarily included depreciation and amortization and stock-based compensation,
and changes in working capital of $1.9 million, which primarily included
increases in accounts receivable and prepaid expense and other current assets
offset by an increase in accounts payable account balances.

Cash used in operating activities was $5.6 million for the three months ended
March 31, 2021. The cash used in operating activities was primarily a result of
a net loss of $5.3 million, adjusted for non-cash items of $2.5 million, which
primarily included depreciation and amortization and stock-based compensation,
and changes in working capital of $2.8 million, which primarily included
increases in accounts receivable and other current asset balances and decreases
in accounts payable and accrued payroll account balances.

We expect that, at least for the near term, our revenues may continue to recover
if macroeconomic conditions improve and business interruptions caused by the
continuing pandemic subside resulting in increased demand for our products and
services. However, we continue to monitor the potential disruptions caused by
future iterations of COVID-19 and supply chain issues that have ensued, which
could cause our revenues to be lower than current levels if customers are unable
to procure our services at the same volumes as previously. The adverse impact
would reduce our operating cash flows and liquidity going forward.

Cash used in investing activities for the three months ended March 31, 2022 and
March 31, 2021 was $1.1 million and $100,000, respectively. The cash used was
primarily attributable to cash paid for purchases of property and equipment for
our technology infrastructure platform as well as capitalized software
development costs.

We expect property and equipment purchases in the near and intermediate term to
be similar to or modestly lower compared to our most recent periods. We expect
any increase to our operations to have a corresponding increase in expenditures
for our systems and personnel. We expect our expenditures for product
development initiatives will be relatively stable to modestly higher in the near
and intermediate term and increase in the longer term in absolute dollars with
any acceleration in development activities and as we increase the number of
personnel and consultants to enhance our service offerings. In the intermediate
to long term, we also expect to increase the number of personnel supporting our
sales and marketing and related growth initiatives.

Cash provided by financing activities for the three months ended March 31, 2022
and March 31, 2021 was $16,000 and $33,000, respectively. The cash provided was
primarily attributable to proceeds from stock options and the employee stock
purchase program.

Based on our operating plans we believe that our resources will be sufficient to
fund our operations, including any investments in strategic initiatives, for at
least twelve months, however the length and severity of the pandemic could
influence our operating plans and resources significantly. Additional equity and
debt financing may be needed to support our acquisition strategy, our long-term
obligations, and our company's needs. There can be no assurance that, if we
needed additional funds, financing arrangements would be available in amounts or
on terms acceptable to us, if at all. Failure to generate sufficient revenue or
raise additional capital could have a material adverse effect on our ability to
continue as a going concern and to achieve our intended business objectives.

Critical Accounting Policies


Our Condensed Consolidated Financial Statements have been prepared using
accounting principles generally accepted in the United States (U.S. GAAP). Our
critical accounting policies are those that we believe have the most significant
impact to reported amounts of assets, liabilities, revenue and expenses and the
related disclosures of contingent assets and liabilities and that require the
most difficult, subjective, or complex judgements.

The policies below are critical to our business operations and the understanding
of our results of operations. In the ordinary course of business, we make a
number of estimates and assumptions relating to the reporting of our results. We
base our estimates on historical experience and on various assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

We believe the following topics reflect our critical accounting policies and our more significant judgement and estimates used in the preparation of our financial statements.

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Principles of Consolidation


Our Company consolidates all entities that we control by ownership of a majority
voting interest. All inter-company transactions and balances have been
eliminated in consolidation. Certain reclassifications have been made to the
Condensed Consolidated Financial Statements in the prior periods to conform to
the current period presentation.

Revenue


We generate the majority of our revenues from core analytics and solutions
services. Our call analytics technology platform provides data and insights that
can measure the performance of calls and texts for our customers. We generate
revenue from our call analytics technology platform when customers pay us a fee
for each call, text, or other communication related data element they receive
from calls or texts or for each phone number tracked based on a pre-negotiated
rate. As such, the majority of total revenue is derived from contracts that
include consideration that is variable in nature. The variable elements of these
contracts primarily include the number of transactions (for example, the number
qualified phone calls).

Customers typically receive the benefit of our services as they are performed
and substantially all of our revenue is recognized over time as services are
performed. The majority of the Company's customers are invoiced on a monthly
basis following the month of the delivery of services and are required to make
payments under standard credit terms.

For arrangements that include multiple performance obligations, the transaction
price from the arrangement is allocated to each respective performance
obligation based on its relative standalone selling price and recognized when
revenue recognition criteria for each performance obligation are met. The
standalone selling price for each performance obligation is established based on
the sales price at which we would sell a promised good or service separately to
a customer or the estimated standalone selling price.

In certain cases, we record revenue based on available and reported preliminary
information from third parties. Collection on the related receivables may vary
from reported information based upon third-party refinement of the estimated and
reported amounts owed that occurs subsequent to period ends.

Stock-Based Compensation


FASB ASC Topic 718, Compensation - Stock Compensation (ASC 718) requires the
measurement and recognition of compensation for all stock-based awards made to
employees, non-employees and directors including stock options, restricted stock
issuances, and restricted stock units be based on estimated fair values. We
account for forfeitures as they occur. We measure stock-based compensation cost
at the grant date based on the fair value of the award and recognize it as
expense over the vesting or service period, as applicable, of the stock-based
award using the straight-line method.

We generally use the Black-Scholes option pricing model as our method of
valuation for stock-based awards with time-based vesting. Our determination of
the fair value of stock-based awards on the date of grant using an option
pricing model is affected by our stock price as well as assumptions regarding a
number of highly complex and subjective variables. These variables include, but
are not limited to, the expected life of the award, our expected stock price,
volatility over the term of the award and actual and projected exercise
behaviors.

Although the fair value of stock-based awards is determined in accordance with
ASC 718, Compensation - Stock Compensation the assumptions used in calculating
fair value of stock-based awards and the use of the Black-Scholes option pricing
model is highly subjective, and other reasonable assumptions could provide
differing results. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be materially different
in the future. See Note 6. Stockholder's Equity in the Notes to Condensed
Consolidated Financial Statements for additional information.

Allowance for Doubtful Accounts and Advertiser Credits


Accounts receivable balances are presented net of allowance for doubtful
accounts and advertiser credits. The allowance for doubtful accounts is our best
estimate of the amount of probable credit losses in our accounts receivable. We
determine our allowance based on analysis of historical bad debts, advertiser
concentrations, advertiser creditworthiness and current economic trends. We
review the allowance for collectability on a quarterly basis. Account balances
are written off against the allowance after all reasonable means of collection
have been exhausted and the potential recovery is considered remote. If the
financial condition of our advertisers were to deteriorate, resulting in an
impairment of their ability to make payments, or if we underestimated the
allowances required, additional allowances may be required which would result in
increased general and administrative expenses in the period such determination
was made.

                                       22
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We determine our allowance for advertiser credits and adjustments based upon our
analysis of historical credits. Material differences may result in the amount
and timing of our revenue for any period if our management made different
judgments and estimates.

Goodwill and Intangible Assets


Goodwill represents the excess of the purchase price over the fair value of
identifiable assets acquired and liabilities assumed in business combinations
accounted for under the purchase method. Intangible assets from acquisitions
represent customer relationships, technologies, non-compete agreements, and
tradenames related to previous acquisitions. These assets are determined to have
definite lives and are amortized on a straight-line basis over the estimated
period over which we expect to realize economic value related to the intangible
asset. The amortization periods range from one year to 5 years.

We apply the provisions of the FASB ASC Topic 350, "Intangibles - Goodwill and
Other" (ASC 350) whereby assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized, but instead test
for impairment at least annually. ASC 350 also requires that intangible assets
with definite useful lives be amortized over the respective estimated lives to
their estimated residual values and reviewed for impairment in accordance with
ASC 360, "Property Plant and Equipment" (ASC 360). Intangible assets are
"grouped" and evaluated for impairment at the lowest level of identifiable cash
flows.

Goodwill is tested annually on November 30 for impairment. Goodwill and
intangible assets are also tested more frequently if events and circumstances
indicate that the assets might be impaired. The provisions of the accounting
standard for goodwill and other intangible assets allow us to first assess
qualitative factors to determine whether it is necessary to perform a
quantitative impairment test. Events and circumstances considered in determining
whether the carrying value of goodwill and intangible assets may not be
recoverable include but are not limited to significant changes in performance
relative to expected operating results; significant changes in the use of the
assets; and significant changes in competition and market dynamics. These
estimates are inherently uncertain and can be affected by numerous factors,
including changes in economic, industry or market conditions, changes in
business operations, a loss of a significant customer, changes in competition or
changes in the share price of common stock and market capitalization. If our
stock price were to trade below book value per share for an extended period of
time and/or we experience adverse effects of a continued downward trend in the
overall economic environment, changes in the business itself, including changes
in projected earnings and cash flows, we may have to recognize an impairment of
all or some portion of our goodwill and intangible assets. An impairment loss is
recognized to the extent that the carrying amount exceeds the asset or asset
group's fair value. If the fair value is lower than the carrying value, a
material impairment charge may be reported in our financial results. We exercise
judgment in the assessment of the related useful lives of intangible assets, the
fair values, and the recoverability. In certain instances, the fair value is
determined in part based on cash flow forecasts and discount rate estimates. We
cannot accurately predict the amount and timing of any impairment of goodwill or
intangible assets. Should the value of goodwill or intangible assets become
impaired, we would record the appropriate charge, which could have an adverse
effect on our financial condition and results of operations.

Any future impairment charges could have a material adverse effect on our financial results.

Provision for Income Taxes


We are subject to income taxes in the U.S. and certain international
jurisdictions. Significant judgment is required in evaluating our uncertain tax
positions and determining our provision for income taxes. We utilize the asset
and liability method of accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
law is recognized in results of operations in the period that includes the
enactment date.

We determined that it is not more likely than not that our deferred tax assets
(excluding certain insignificant Canadian deferred tax assets) will be realized
and accordingly recorded 100% valuation allowance against these deferred tax
assets as of December 31, 2021 and March 31, 2022. In assessing whether it is
more likely than not that our deferred tax assets will be realized, factors
considered included: historical taxable income, historical trends related to
advertiser usage rates, projected revenues and expenses, macroeconomic
conditions, issues facing the industry, existing contracts, our ability to
project future results and any appreciation of its other assets. The ultimate
realization of deferred tax assets depends on the generation of future taxable
income during the periods in which those temporary differences are deductible.
We considered the future reversal of deferred tax liabilities, carryback
potential, projected taxable income, and tax planning strategies as well as its
history of taxable income or losses in the relevant jurisdictions in making this
assessment. Based on the level of historical taxable losses and the uncertainty
of projections for future taxable income over the periods for which the deferred
tax assets are deductible, we concluded that it is not more likely than not that
the gross deferred tax assets will be realized.

                                       23
--------------------------------------------------------------------------------


From time to time, various state, federal, and other jurisdictional tax
authorities undertake reviews of us and our filings. We believe any adjustments
that may ultimately be required as a result of any of these reviews will not be
material to the financial statements.

Leases


We determine if an arrangement is a lease at inception. This determination
generally depends on whether the arrangement conveys to us the right to control
the use of an explicitly or implicitly identified fixed asset for a period of
time in exchange for consideration. Control of an underlying asset is conveyed
to us if we obtain the rights to direct the use of and to obtain substantially
all of the economic benefits from using the underlying asset. We have lease
agreements which include lease components. We do not have lease agreements which
include non-lease components or variable lease components.

Operating leases are included in right of use assets ("ROU") and lease
liabilities on our Condensed Consolidated Balance Sheets. Operating lease ROU
assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. Operating lease payments are
recognized as lease expense on a straight-line basis over the lease term. We
primarily leases office facilities which are classified as operating leases. We
do not have finance leases. ASC 842 requires a lessee to discount its unpaid
lease payments using the interest rate implicit in the lease or, if that rate
cannot be readily determined, its incremental borrowing rate. As an implicit
interest rate is not readily determinable in our leases, we use our incremental
borrowing rate based on the information available at commencement date in
determining the present value of lease payments. The lease term for all of our
leases includes the non-cancellable period of the lease. Options for lease
renewals have been excluded from the lease term (and lease liability) for our
leases as the reasonably certain threshold is not met. Lease payments included
in the measurement of the lease liability are comprised of fixed payments.

The new standard also provides practical expedients for an entity's ongoing
accounting. We elected the short-term lease recognition exemption for all leases
that qualify. This means, for those leases that qualify, we did not recognize
ROU assets or lease liabilities, and this included not recognizing ROU assets or
lease liabilities for existing short-term leases of those assets in transition.
We also elected the practical expedient to not separate lease and non-lease
components for all of its leases.

Recent Accounting Pronouncement Not Yet Effective


For discussion regarding recent accounting pronouncements not yet effective, see
Note 1. Description of Business and Basis of Presentation of the Notes to our
Condensed Consolidated Financial Statements.

Web site


Our web site, www.marchex.com, provides access, without charge, to our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to those reports as soon as reasonably practicable after
such materials are electronically filed with the Securities and Exchange
Commission. To view these filings, please go to our web site and click on
"Investor Relations" and then click on "SEC Filings." Investors and others
should note that we announce material financial information to our investors
using our investor relations website, press releases, SEC filings, and public
conference calls and webcasts. We also use the following social media channels
as a means of disclosing information about us, our services, and other matters,
and for complying with our disclosure obligations under Regulation FD:
  • Marchex Twitter Account (https://twitter.com/marchex)


  • Marchex Company Blog (http://wwwblog.marchex.com/blog)


  • Marchex LinkedIn Account (http://linkedin.com/company/marchex)


The information we post through these social media channels may be deemed
material. Accordingly, investors should monitor the above account and the blog,
in addition to following our investor relations website, press releases, SEC
filings, and public conference calls and webcasts. This list may be updated from
time to time. The information we post through these channels is not a part of
this Quarterly Report on Form 10-Q.

© Edgar Online, source Glimpses

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